As one can see, my title ‘Global Killer’ is extremely terrifying, aggressive and has a negative feel. In the entirety of my career, I have never written as negatively as you are about to witness. For the past few months I have been occupied by extensive research and calculations. Upon reading about the history of historical financial crises and applying some models in order to clearly understand- I am able to foresee where we are headed by the end of this year, and years ahead. After more than six months of research I have come up with the following and can confidently state that the 'real' financial crisis is on its way and it is only a matter of time.



Approximately seven years ago I wrote about the 2007 financial crisis a year prior to its hit and today it feels as if I am writing almost verbatim. This time around the factors are different and much clearer than in 2007, which goes to prove that history always repeats itself.



In this article I will show you how the Federal Reserve is pushing the US Economy off a cliff. I will also explain how the Federal Reserve does not have a credible exiting strategy or even a credible stimulus strategy to stimulate the economy. I will prove what the Fed calls a “current economic recovery” is a hoax and will not last too long before the collapse occurs again. 


My article will provide evidence that shows how the inflation figures in the US are way above the Fed target- despite the fact that the official figures are way below the Fed target. I will shed the light on the Federal Reserve policy and balance sheet expansion. I will also prove how the US jobs sector is shrinking and that the decline in the unemployment rate is a decline that is not driven by creating enough jobs.



Along those lines, I will discuss the scenarios that the US and global economy will suffer from in the next few months from a so-called “Bonds Bubble.” The ‘Bonds Bubble Crisis’ will be the ultimate crash in the US economy and show that the Fed will NOT stop the quantitative easing as it is claiming and be forced to raise interest rates to high levels. In addition, I will explain how banks will fail, depositors will lose, the US Dollar value will decline significantly and the US will default to a point where Gold and Silver will skyrocket faster than they have declined lately.



I will sort the article subjects as follows:



  • US Inflation is way higher than the Fed Target

 

  • US Jobs Sector is shrinking

 

  • US Quantitative Easing and Fed Balance Sheet

 

  • Bonds Bubble Scenario

 

  • Silver and Gold will skyrocket


Before you read my article I would like you to say that all of my predictions are based on history and real time data. I have spent long hours analyzing the figures and historical cycles which have given me clear evidence to say that this mess is a product of the governments and central banks across the globe. The banks today want to buy more time before the real crash begins. Nobody wants to hear about the US heading to a default but they clearly are.



US Inflation is way higher than the Fed Target

The government figures indicate that the US inflation figures are very low and below the Federal Reserve 2% target. While Core PCE is standing around 1.1%, until this article is released (0.9% away from the Fed target). However, I believe that this number is far away from the actual number and by calculating a basket of goods that can be calculated, I believe that the US CPI is somewhere between 7% to 10%.

The government is telling us that inflation is low. The question we ask is, how has the government printed a large sum of money while inflation is not rising? It can be one of two things. 1) The government is printing money and prices are not rising. 2) The prices are rising and the government is not being honest about it.

I have decided to judge the accuracy of our present day consumer price index. I selected 20 consumer goods that people pretty much purchase weekly and wanted to compare the increase in the price in my basket during two time periods. During the decade of 1970's when everybody agrees that there was high inflation, and the most recent decade ending in Dec-2012.

The items I have selected for my basket: eggs, new cars, milk, gasoline, bread, rent for primary residence, coffee, dental services, potatoes, electricity, sugar, airline tickets, butter, stored purchased beer, apples, public transportation, tires, beef and prescription drugs.

 

During the decade of 1970's, the consumer price index rose by the official number of 112.0%, while our basket rose by 117%. This means that our basket rose 5% faster than the overall CPI. Now let’s take a look at the past decade between 2002 and 2012 and see that the CPI rose by 27.5%. Being much slower than in 1970's, our basket rose by 44.3% during  the same time period of 2002 and 2012. This calculation goes to prove that our basket price rose 61.0% faster than the official CPI. The worst part of this scenario is that the government figures are incorrect. As you keep reading you will see that I will prove all of this to you. One of the categories that I have not included in our basket is newspapers and magazines

 

According to the government, from 1999 through the end of 2012 the average price of newspapers and magazines rose by 37.1%.



Wanting to verify if the figure by the government was correct, I decided to calculate from 1999 until 2012. It is easy to do hence the price of the newspapers and magazines are printed directly on the cover. I went ahead and selected Wall Street Journal, The Washington Post, Time Magazine, Sports Illustrated, US News and World Report, US News Week, People, The New York Times, USA Today, and the Los Angeles Times.

The average increase in these 10 newspapers and magazines during the same time period (1999-2012) rose by 131.5% vs. an official price increase of 37.1%. In other words, the actual rate of increase in the price of a newspaper and magazine is three and a half times what the government is claiming it is. 

This inflation is not just limited to newspapers and magazines; it can also be the case of health insurance. Health insurance is also a component of the official CPI. According to the government in the five-year period of 2008 to 2012 they say that health insurance increased by 4.3% only. That's it? 4.3%? Where is the government getting their statistics from? Believe me, I wish I could find an insurance carrier who has only raised their premiums 4.3% over the last five years. I am not the only person questioning this. According to Kaiser Survey of Employer Sponsored Health Insurance, they stated that insurance premiums over that same five-year period were 24.2%. In other words, the actual increase in the price of health insurance was five and a half times higher than the official price increased used by the government to calculate the CPI.

 

If the government was incorrect about the inflation in newspapers and magazines, and were also off about health insurance... how could we believe that they were truthful about anything? Who knows where the government is coming up with these figures? What we do know is that the last thing the government wants is for the public and investors to find out how much inflation we have and are in for. A clear interest for the government is to fool the world into believing that there is no inflation. After all, if they admitted that there is inflation, they would not be able to keep stimulating the economy and claiming that all the quantitative easing was not causing inflation. The government will soon be forced to deal with the deficit if they acknowledge that there was inflation in the first place.

 

In regards to the housing bubble when it was not obvious that there was a bubble, Alan Greenspan and then Ben Bernanke denied that there was a housing bubble the entire time the Fed was inflating it. Even after the bubble burst, Ben Bernanke still said it did not exist. Since the Fed remains blind to what should have been obvious, they kept interest rates too low for too long and blew more air into the bubble. When the bubble finally burst, the country suffered as a result of this terrible monetary policy. The Fed is repeating the same mistake once again, in respect to inflation. The Fed insists on keeping interest rates too low for too long because they cannot see the inflation (or choose to ignore it).


The CPI Index is not an accurate index to measure inflation, and as I have previously stated before, and based on my research for the past months, the US CPI is a figure between 7% to 10%. Since the government and the Federal Reserve is not being honest about the figures, the next few months will prove to us and to everyone across the globe that inflation is way higher than the government's official numbers.

 

US Jobs Sector is Shrinking

Since the US unemployment rate topped at 10% during the financial crisis, we have been seeing a sharp decline back to 7.5% in the year 2013. I believe that this decline in unemployment cannot be seen as an improvement. Since the jobs sector is shrinking, it is why the unemployment rate will automatically decline. Therefore, the "improvement" that the Federal Reserve and government have been talking about was basically untrue, and our answers will soon be evident.

I will prove that the decline in the unemployment rate is a hoax by comparing the US unemployment rate and US labor force participation rate.

 

As we all know, the employment participation rate represents the proportion of the population that is in the labor force. For example,  if we want to say that there is an improvement, the participation rate should go higher while unemployment should drop. If we want to say that there is a weakness, the unemployment rate should go up while participation rate concurrently goes up as well.

 


Ironically, all that is happening right now since the late economic crisis is absolutely unique. The unemployment rate is declining AND the participation rate is declining as well. This brings us to the fact that the labor force is shrinking. Thus, the unemployment rate is declining. Although the jobs sector is shrinking, we cannot say that the jobs sector is expanding or even improving. The fact is that the decline in the unemployment rate is driven by the declining labor force.


Those who have been paying close attention and were tracking the jobs reports since the financial crisis until today can see that there is a high percentage that most jobs created since the financial crisis are part-time and NOT full time jobs. This goes to further prove that the US economy is still unable to afford salaries of full time job employees.  The chart below explains the history for the participation rate and unemployment rate and how the decline in theunemployment rate is driven by declining participation rate for the first time in history. Logically, when the participation rate goes up and the unemployment rate goes down, it is what we call an improvement.

 

At this moment in history, Detroit has filed for bankruptcy. This historical moment is likely to have an impact on the unemployment rate. Further declines in the participation rate will continue to show some stabilization in the unemployment rate. However, the stabilization will not continue for a long time before the unemployment rate skyrockets again.

 

US Quantitative Easing and Fed Balance Sheet



The Federal Reserve pumped a large sum of cheap money to stimulate the economy. The quantitative easing targets seem to be missed as the economic recovery is not stable until now.


The Federal Reserve balance sheet continues to spike gradually to record highs. What concerns me the most is that the Federal Reserve balance sheet passed 3.5 Trillion US Dollars. However, the Federal Reserve claims that the inflation remains low thus far. Whereas my research proves that inflation is much higher than what the Fed is claiming.

The questions looming in my mind are as follows: What would be the Fed's exiting strategy? Does the Fed in fact have a credible exiting strategy? How will the Fed sell the 3.5 Trillion? To whom? Who will buy the 3.5 Trillion? What would be the price of these bonds? How much would the yields be?

The above-referenced questions have no answers thus far, and knowingly, there is more than 1 Trillion US Dollars which will mature in 2014. Does the Fed have the capability to let these bonds mature?

I believe that the Fed will keep quantitative easing. I do not believe that the Fed has a credible exiting strategy as of yet, and believe they may come up with a new idea whereas today they split QE from interest rates. I also firmly believe that the Fed will lose control of inflation which will force them to raise interest rates in order to cap inflation. This is all in order to attract the investors to shift to bonds once again. The Fed is aware that there is a bubble underway, and continues to inflate it- just like in 2007 during the housing bubble. When the bubble bursts the Fed will not admit that it was a bubble just like they never did during the housing bubble.

 

Bonds Bubble Scenario



In my extensive research over the past few months, I could not find any other scenario than the one I will explain below. I believe it is much clearer to the eye than the financial crisis. 

I believe that we will hear two breaking news headlines. 1) Banks will lose control of inflation 2) US will stop paying their debt.

In order for you to further understand, allow me to elaborate.



What is an Asset (Bond) Bubble?



A 'Bubble' is simply a case of an asset that trades far above its true value for an extended period of time. Typically, the run-up in prices if fueled by rampant investors, greed and the widespread belied that no matter how high prices may be now, someone else is likely to pay an even higher price in the near future. The bubble scenario and the price of assets declining to a more realistic value will eventually lead to heavy losses for investors who were late to the party.

 

Looking back at the history, there have been numerous bubbles throughout different eras, including the Dutch Tulip Bulb Mania (1630s), the shares of the South Sea Company in Great Britain (1720). Railroad stocks in the United States (1840s), the U.S stock market run-up in the, "Roaring Twenties" and the Japanese stock and real estate in the 1980's. More recently, the United States experienced bubbles in both technology stocks (2000 - 2001) and real estate (the mid 2000s). All, of course, ended in a crash in the price of each asset in question, and - for larger bubbles such as those in Japan in the 80s and in the United States in the past decade - a protracted period of economic weakness.



Why Would the Bond Market be in a Bubble?



If you believe what you read in the financial media, the government statements and numbers, the US bond market is the next great asset bubble. The thesis behind this is relatively simple: Following the historic bull market , U.S. Treasury yield have dropped so low that there is little latitude for further decline. (Keep in mind that yields and prices move in opposite directions). What's more is a key reason that yields are so low is the policy of ultra-low short-term interest rates the Federal Reserve has enacted in order to stimulate the economy. Once the economy fully recovers and employment rises to more normalized levels, the thinking stops and the Fed will begin to raise the rates. When this finally occurs, the artificial downward pressure on Treasury yields will be removed, and the yields will rise sharply as prices fall.

 

In this sense, it could be said that Treasuries are indeed in a bubble - (not necessarily because of a mania as was the case in the past) but because yields in the marketplace are higher than they would be without the Fed's aggressive action.



Does this Mean the Bubble Will Burst?



After all the factors that I have proved to you from the beginning of my article, the simple answer is YES. The million dollar question is WHEN?

 

I have been following the Federal Reserve statements very carefully, and notice a clear split in the Fed: Some need to taper QE in September, and some of the officials want to end QE by the end of this year. Fed Chairman Ben Bernanke stated that signals from Inflation and Employment indicate that further QE is needed. In conclusion,  the Fed does not know what to do.

 

It is inevitable that the bubble is happening sooner or later. As pessimistic as I am, I believe the bubble will burst by the end of this year (2013) or during mid 2014. To show my maximum optimistism I would predict the crisis to hit sometime between mid 2014 and the end of 2014 and/or before President Obama finishes his second term in office.

 

There is a total of two scenarios in regards to the QE. The first scenario is that the Fed will keep QE to stimulate the economy and concurrently may raise interest rates at the same time (to curb the inflation).


The second scenario would be that the Fed would be forced to end QE and start raising rates.


In both cases the question that  remains is who will buy more than 3.5 Trillion Dollars of treasuries? What will the price of the bonds be at that time, and how much would the yield be?

 

This simply sounds awful. Since inflation is already high, the yields will skyrocket and the Fed Core PCE will just be slightly above 2% at the beginning, and will skyrocket later as well. One can only imagine what would happen at that point in time... layoffs will begin,  higher unemployment rates above 9% again. Now picture what would happen to the companies that have a lot of bonds as well? They will also be forced to cut their costs and will start by laying off more employees. Banks will be harmed, Housing Sector will crash again and Stocks will lose another 50% of their value. The final disaster would be that the US Dollar could be devaluated as well. Along those lines, the US will stop paying their debt and will start restructuring it.


Final word in regards to debt is that the economies will always crash every few double digit years.

 

Silver and Gold will skyrocket


As I have repeatedly stated in multiple media appearances, I am still purchasing gold even after the latest massive decline to as low as 1180 USD/Ounce. I firmly do believe that inflation is way higher than the official numbers. In addition to my expectations that the bonds bubble will hit sooner or later, the best asset to invest during inflation is gold but this time and silver may have a significant rally as well. Gold and silver will always be a better investment than cheap money.


I think that gold could be bottomed at 1180 USD/Ounce and may already begin trending higher to make its way to a new historical high along with silver.


Gold has never been in a bubble and will never be in a bubble. It has more value than anything else. Therefore, you need to start thinking how to protect your wealth and your savings by converting value-less money into gold or silver.


Conclusion


As I have said before, this article and the expectations are based on deep research from the past few months. I have been looking into economics and business cycles, in addition to comparing the official releases with our figures. Thus further proving there is a lot of manipulation which has lasted for years. The entire crises that we have seen for the last decades was due to the governments manipulations of the economic figures. Why you may ask? The answer is the, "Greed." The governments like to amplify the economy to be at the top of the world by spending money on the economy. In other words, the governments have been spending money from the money that they do not have, which has to stop sooner or later. This time, the disaster will not help the government buy more time as they have before. Why you may ask? The answer is simple. During the previous crisis,  the debt was low. Therefore, it was so easy to borrow more and to spend more in order to buy more time. But right now, they will not be able to do so. 

 

As long as the governments continue to borrow and spend money without producing, we will all see further crises occur again and again. 


At the end of my article I would like to say that I truly hope I am wrong, because if this crisis hits, it would lead to a massive restructuring of the global economy which may also have some political unrest across the globe.

 

Chief Editor: Michelle Mackerdichian